Guide To Overcoming Retail Cash Flow Problems

Overcoming retail cash flow problems without going into debt or breaking the bank starts with prevention.


By Luke Trickett

Irregular cash flow is a big issue for retail businesses. In 2021, more than 70% of businesses reported cash flow difficulties. Worse, 40% of Australian business closures were directly associated with cash flow concerns.

This problem is even more pronounced in the retail space. Too little cash can prevent you from harnessing new opportunities, while delayed payments make it difficult to keep your doors open comfortably. And with more than 134,535 Australian companies now classified as retail organisations, negative cash flow has a 2 in 5 chance of significantly impacting your business.

But cash flow issues aren’t a certainty when running a retail business. Overcoming retail cash flow problems without going into debt or breaking the bank starts with prevention.

This article will explore some of the most common cash flow issues experienced by retailers. We’ll also evaluate some solutions, all best practices, and one innovative invoice platform that can get your business booming.

Understanding retail cash flow

At its simplest definition, cash flow is a measurement of money flowing in and out of your business. Positive cash flow means more money is coming in than going out, usually represented by increased liquid assets (i.e., cash in your checking account). In contrast, negative cash flow shows that more money is leaving the business than is coming in, which shows that your liquid assets are decreasing (i.e. less cash in your checking account).

Cash flow is vital for several reasons. Not only is it a measurement of the health of your business, but it acts as a pulse check for partners, employees, and potential business investors. Think of your cash flow as the circulatory system of your business. The more money is being healthily moved around your business, the more stable, productive, and successful your business will be.

Unfortunately, retail businesses have struggled immensely with their cash flow over the past few years. Thanks to the pandemic, shopping restrictions, and higher inflation rates, the liquid assets of Australian businesses are on the decline.

A government study performed in February 2021 found that current business conditions are rife with reduced cash flow concerns:

  • 30% of Australian businesses reported reduced cash flow overall
  • 28% of retail businesses experienced less demand for their products, reducing income
  • 22% of businesses reported an increase in operating expenses, increasing expenses
  • 41% of businesses said their cash flow couldn't cover three months of business operations

If retail businesses aren't careful (or don't plan ahead), cash flow issues could appear out of nowhere. This can wreak havoc on even the best-laid plans and swallow up your budget and brand.

Cash flow problems for a small retail business

There are several reasons why small retail businesses may be more vulnerable to cash flow problems. For one thing, newer business owners may be inexperienced or less confident about managing their commercial finances. Retailers usually need more liquid capital to manage daily operations and maintain inventory. Add factors like delayed customer payments and reduced access to invoice tools, and it's no wonder why so many small businesses are feeling the cash flow pinch.

For the retail industry, there are three major causes of cash flow problems: inaccurate forecasts, bad sales, and unpaid invoices.

Problem #1 — Misjudged cash flow

If you don't know how much money flows around your business, you will be significantly disadvantaged over other businesses. Failing to estimate your expenses correctly could leave you with a nasty surprise at the end of the month or even with bills that can't be paid at all. Recent estimates suggest that more than a third of all new business owners underestimate their monthly operating costs, leaving themselves vulnerable to the whim and fancy of the marketplace.

The solution — A cash flow statement for retail businesses

As a retail business owner, you need to clearly understand how much money is coming in, where it's going, and what it will be used for. This will give you a better idea of your business's overall financial health and help you make more informed decisions about growth opportunities for inventory, marketing, and partnership opportunities.

Creating a retail store cash flow spreadsheet is the easiest way to get more visibility into your cash flow. If you don't already have one of your own, you can download a retail cash flow template from a reputable platform like Xero. This will let you mark down all expenses, profits, and sources of income and empower you to make level-headed decisions about what to cut or leave alone.

Problem #2 — Low retail sales

Products that don't sell won’t make money. And if you're in the retail industry, zero sales will mean zero cash flow. Seasonal slumps are expected (think the post-holiday months), but prolonged losses such as those experienced after COVID-19 can destroy cash flow forecasts. If the numbers stay low for long enough, you may be forced to make a difficult decision regarding the future of your business.

The solution — Recast and regroup

If your retail sales have taken a nosedive, it might be time to look at your current strategy. You may want to reduce your inventory holdings to free up some working capital or cut back on marketing spending until your sales rebound. You can also renegotiate current contracts to loosen the collar on your current cash flow expenses.

Next, it's time to focus on boosting your sales. If you don't already have an integrative product sales plan, sit down with a professional to discuss a strategy. Consider rethinking your prices to find the perfect positioning or pivot to a bundling tactic to sell more items and increase your profit margins.

Problem #3 — Unpaid invoices

Non-payment from customers is the most significant cash flow pain point of the 21st century. We're not just saying that either: thousands of retailers report dealing with unpaid invoices, all to the tune of $38,000. Today, late payments cost Australian businesses a collective $76 billion per year.

And the problems keep coming. The average late invoice payment is nearly two months long, potentially lasting even longer for an unlucky 3% of businesses. When allowed to continue long enough, late invoices could hold up your cash flow for nearly one-sixth of the year and significantly cripple your cash flow.

The solution — Business finance

The most apparent solution to late payment issues is to get paid faster. But of course, that's much easier said than done.

Many businesses explore traditional financing outlets such as business loans, credit cards, and invoice financing to source instant cash and cover lingering expenses. However, these financing options are often restrictive, and their hefty fees and high-risk margins could be a potential problem.

The most apparent solution to late payment issues is to get paid faster.

Small business financing for SMB retailers

When the going gets rough, many retail businesses turn to traditional financing options to keep their brands afloat. In 2021, 14% of retail businesses sought additional funds to cover their cash flow issues — starting with traditional business loans.

But business loans for retailers are anything but guaranteed. In 2021, 18% of small businesses couldn’t get a loan to cover their cash flow issues. Nearly 9% of small businesses couldn’t meet the debt repayments, while 10% were unable to meet the eligibility requirements. Moreover, 42% were unwilling to increase their debt to income ratios, as the high borrowing amounts and hefty interest rates just weren't accessible.

Business loans are widely considered to be the most common form of lending. These loans are generally lump sum payments deposited directly into your business account and require monthly repayments at a set interest rate. This could be problematic for small retailers struggling to make ends meet, pushing them further into debt.

Business loans are rarely a convenient financing option for most retailers, which is why credit cards and lines of credit seem like an attractive alternative. Lines of credit seem like a great option for covering the gap — on the surface.

Credit cards come with exorbitant annual percentage rates (APRs), often imposing a hard limit that can impact your credit if exceeded. If your credit drops low enough, your spending limit may be reduced, or you may even experience a complete loss of credit access.

As a last-ditch effort, some retailers turn toward the commercial equivalent of a payday loan. Otherwise known as merchant cash advances (MCAs), this provides businesses with upfront cash for a percentage of future profits. MCAs had an approval rating of 84% in 2020, one of the highest in the financing industry.

But its drawbacks dramatically outweigh its benefits.

The cost of an MCA is steep — exorbitantly so. Some merchant cash advances charge APRs in the triple digits, creating a debt cycle that feels almost impossible to break. And for smaller retailers, paying off these obligations might take several years.

As you can see, most cash flow ‘solutions’ are just band-aids. They can cover your expenses for a short time, but they can't (and won't) stop a severe financial bleed. Holding onto them for long enough may significantly drain your small business expenses, making it difficult to pay back what you borrowed in the first place.

Thankfully, these financing options aren't the only cash flow solutions around. To avoid the potential financial pitfalls of business loans, lines of credit, and traditional financing, small retailers can turn to innovative alternatives that address the root of the problem rather than its symptoms.

In Australia, this solution is known as Marmalade.

How to manage cash flow in retail with Marmalade

What if retailers could access their unpaid invoices without paying exorbitant fees, performing extensive credit checks, or signing away their lives?

At Marmalade, we saw firsthand how late invoice payments could wreak havoc on even the most prepared retailers. That’s why we created a world-first early invoice service that was designed to be the fastest way to manage retail cash flow.

Here’s how Marmalade works:

  • Create your account — Marmalade and Xero go together like jam and bread, linking seamlessly with just one click.
  • Upload invoices — Sift through your eligible unpaid invoices and upload them to our platform.
  • Choose the invoices you want to cash in — Simply select the invoice you wish to cash-in, review the associated one-off fee locked between 3-5% and submit.
  • Access your funds — Once your request is successfully submitted, you'll receive the funds in your business account within 24 hours guaranteed. You can spend your cash however you please and instantly start reducing cash flow issues.

With hundreds of happy customers, millions of dollars managed, and dozens of success stories from brands all over the country, Marmalade is the retail industry’s efficient solution for unpaid invoices.

Healthy finance for retail businesses starts with Marmalade

Your retail business deserves more than a ‘band-aid’ cash flow solution. With Marmalade, you can access the funds you need without putting your business at risk. It's fast, easy, and cost-effective, helping you navigate an uncertain modern business climate with stable and innovative solutions.

Kick cash flow challenges to the curb and crush the cycle of debt with a quick phone call to team Marmalade today. Sign up for an online account, and we'll reach out to you soon.